Why I Passed On KYN's 9.7% Yield

Seeking AlphaClosed End FundsWhy I Passed On KYN's 9.7% YieldDec. 23, 2020 3:06 AM ET|| About: Kayne Anderson MLP/Midstream Investment Company (KYN), Includes: AMLPby: Closed End Fund TrackerClosed End Fund Tracker CEFs, Dividend Growth Investing, Dividend Investing, portfolio strategyInterval Fund Tracker.cls-1{fill:#024999;}SummaryThe energy sector is a prime hunting ground for contrarian income ideas.
KYN is focused on the MLP and midstream energy sector, but it plans to shift to more renewable energy infrastructure in the long term.
The last few years have been devastating for KYN shareholders, although it has performed less badly than other MLP CEFs.
The 9.7% yield and 15% NAV discount make KYN worth looking at more closely.
However, its aggressive balance sheet, high fees and unfavorable corporate governance changes are likely to dampen long-term returns.
Energy is possibly the most hated sector in the economy. This makes it prime hunting grounds for contrarian investment opportunities. I’ve written in the past about how most investors are underestimating the probability of a sharp snap back in oil prices after the Covid-19 crisis clears. Even if there is an eventual shift to renewable energy sources, the shift is likely decades away. In the meantime, supplies of oil and gas are likely to get tight.
Yet most investors have been avoiding the energy sector, which after years of decline currently accounts for only 3% of the S&P 500 index. Getting energy exposure through a closed end fund structure is an opportunity to purchase energy assets at a discount to NAV, and collect substantial income while waiting for a recovery. Kayne Anderson MLP/Midstream Investment Company (KYN) is a prime example.
KYN has traditionally focused on midstream energy companies and master limited partnerships (MLPs), although it is slightly adjusting its strategy to prepare for an eventual transition to clean energy. Energy infrastructure is attractive because of... Read more

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